E-s are good
by Doug Brodie
In this blog:
/1. What ChatGPT says you need to retire.
/2. $2.41 billion – the interest that the US pays on its debt every single day.
/3. Lifting the lid – a quick look at a technical tool we use (warning: it involves ratios).
/4. People rarely do what they plan – the stats from the Society of Actuaries.
/1. What ChatGPT says you need to retire.
The ‘I’ in AI stands for Intelligence; we have been working with AI tools for a little over a year in our project to automate recommendations for retirees within large company schemes, who have pension pots of under £100k. Our project is based on building what’s known as a domain LLM – ChatGPT is an engine that scours the wide internet to draft an answer, a domain LLM like ours only looks at reports that we have previously drafted, using only that information to draft the answer.
We asked ChatGPT (version 4o if you need), for a beginner’s guide to investing a pension for lifetime income:
How to Invest Your Pension for Lifetime Income – A Beginner’s Guide
If you’ve built up a pension and are wondering how to turn it into an income you can rely on for the rest of your life, you’re not alone. The good news is: with a bit of planning, you can make your pension work like a regular pay check. Here’s how.
Step 1: Understand Your Goal
Your goal is simple:
Turn your pension savings into a steady income that lasts for the rest of your life — no matter how long you live, and without running out of money.
Step 2: Know Your Options
There are two main ways to take income from your pension:
1. Guaranteed Income (Annuity)
You give some or all of your pension to an insurance company, and they pay you a fixed income for life.
✅ Pros: Safe, secure, lasts for life.
❌ Cons: Your money is locked in, and payments don’t rise with inflation unless you pay extra for that.
2. Flexible Income (Drawdown)
You keep your pension invested and draw an income from it over time.
✅ Pros: Flexible, can grow with markets, money stays in your name.
❌ Cons: Risk of running out if you take too much or markets fall.
Step 3: Combine the Best of Both
For most people, the best approach is a mix of guaranteed income and flexible income.
Here’s a simple plan:
Cover your essential bills (like rent, food, utilities) with a guaranteed income — using an annuity or the State Pension.
Keep the rest invested for growth and flexible withdrawals — using a drawdown plan.
Step 4: Invest in the Right Way
For the drawdown portion (the flexible bit), your money is invested to grow steadily over time. A good plan spreads your money across:
Shares (stocks) – for long-term growth
Bonds and cash – for stability
Income-producing investments – like dividend-paying funds or investment trusts
The goal is to earn natural income (dividends and interest), so you don’t have to sell investments when markets are down.
Step 5: Withdraw at a Safe Rate
A common rule of thumb is to take around 4% of your pension each year. This helps your money last throughout retirement. For example, if you have £300,000, you might safely take about £12,000 per year.
Step 6: Review Regularly
Life changes. Markets move. It’s important to check your plan every year:
Is your income still covering your needs?
Are your investments performing as expected?
Do you need to adjust the amount you’re taking?
You can do this with a financial adviser or use pension provider tools to help.
Summary: A Simple Lifetime Income Plan
✅ Cover essentials with guaranteed income
✅ Keep the rest invested for growth and flexibility
✅ Take around 4% per year to help your pension last
✅ Review your plan every year
Final Tip
Don’t try to do it all alone if you’re unsure. A regulated financial adviser can help you make a plan that fits your life, your needs, and your money.
/2. $2.41 billion – the interest that the US pays on its debt every single day.
The US lost its uber-safe AAA credit rating. The surprise is that it has taken so long to happen (political / commercial pressure? Surely not…).
Last year it spent $880,000,000,000 (billion) on interest, as opposed to repaying capital. This is the first time the US has lost AAA status since 1917, and makes it deemed less credit worthy than Australia, Denmark, Germany, Canada and seven others. The permitted debt ceiling is $36 trillion (i.e. its overdraft limit), and that is due to be breached in August. The President has to get congress to approve a higher ceiling, and at the same time he is trying to suggest a budget of tax cuts should be approved despite the fact that will bring in a budget over-spend (deficit) of $2.4 trillion. The overspend was $1.8 trillion last year (thanks to our chums at Chartr for the chart):
We read with puzzlement, the White House’s view of this debt, quoted in the Wall Street Journal:
“Kush Desai, a spokesman for the White House, blamed the Biden administration for adding to the nation’s debt and criticized Moody’s for the timing of its downgrade. “The Trump administration and Republicans are focused on fixing [former President} Joe Biden’s mess,” he said. “If Moody’s had any credibility, they would not have stayed silent as the fiscal disaster of the past four years unfolded.
The Moody’s downgrade comes as Republicans in Congress are trying to fashion a giant tax-and-spending bill that would extend expiring tax cuts, add some new tax cuts, reduce spending on Medicaid and nutrition assistance and boost border enforcement and national defence. It is expected to increase budget deficits by about $3 trillion over the next decade, compared with a scenario where the tax cuts expire as scheduled Dec. 31.”
/3. Lifting the lid – a quick look at a technical tool we use (warning: it involves ratios).
You rarely lift the bonnet on your car or look at the innards of your laptop / iPad / mobile phone: you know the insides are teeny weeny technical wires and chips and electronic paraphernalia: you probably don’t know how they work, but like the brakes on your car you just need to know they do.
This is a snip of one of the tools we use in assessing whether or not an investment is useful for us. There’s around 5,000 available retail funds and assets that we sift through, and everything is relative. The Sharpe ratio is a key tool.
“The relationship between risk and return is a fundamental concept in finance. The Sharpe ratio encapsulates this by measuring how much excess return investors earn for each unit of volatility. A higher Sharpe ratio indicates better risk-adjusted performance. Conceptually uncomplicated, the Sharpe ratio has been widely adopted as an episteme of success. Professional hedge fund marketers lug around pitchbooks with Sharpe ratios to promote their funds, and investors are attracted to high Sharpe ratio hedge funds without necessarily having a basic understanding of the return-generating processes behind the underlying strategies.”
In plain English it’s a measure of [the asset’s return (i.e. a fund) less the ‘risk free’ return (i.e. a gilt) divided by standard deviation of the asset (the fund)]. It shows whether a portfolio’s returns are attributable to smart investment decisions, or to luck and risk. It compares the return with the risk being taken. It’s important to note that a Sharpe ratio is of little use if the risk taken is too low. Further, with our strategies Sharpe ratios cannot be relevantly calculated on income, only capital or total return. This is simply because income cannot be negative, it is always positive.
Best explained as an example, you can see above that portfolios 3 & 4 are clearly more attractive propositions – a higher return (10%) with a lower volatility (4.3%), hence a very strong Sharpe ratio of 2.34.
/4. Vietnam, inflation and the real biggest risk you have as a retiree investor.
(This is an excuse to post a photograph of a Bell UH-1 Iroquois, commonly known as a Huey.)
It is now 50 years since the end of the Vietnam War – it was on 30th April that we watched the final evacuation from Saigon. In 1975 the UK retail price index increased by…
Few people retire for 50 years; however, something that cost £10 in 1975 today costs £77.43. More relevantly, perhaps, if you look back over 25 years a person spending £10 when they were 60, at 85 today they are now spending £18.95. If you are 62 and you do not have a rising pension income, then you will not be able to afford your today standard of living when you are 75 or 85 – and who wants to be worried about cost of living in their 80’s? In 2045 we will all either be twenty years older or we’ll be dead. If (hopefully) the former, we will look back at our 20-years younger selves and be grateful for the decisions we make today. Look after your senior-you today.
